One of the most common questions that a homeowner looking for help with their pending foreclosure asks is – what will the bank do to me if there is a defiency owed?
Before I answer that question let me first discuss what I mean by deficiency. When your property is distressed and is facing foreclosure there is often a deficiency owed your lender/bank after a short sale, foreclosure auction, deed-in-lieu-of-foreclosure, etc. In other words the bank only receives back an amount less (i.e. deficient) than what they lent you. That difference of what they were paid back and what you borrowed from them is the “deficiency”.
The bank has a number of options to deal with the deficiency you owe them. I want to point out here that the method you use … Read entire article »

Article by Erik stump
The process of settling debt is when a process of arbitration is held between the debtor and the lender and a lower payoff is agreed upon by the lender. Settlement services are taken into account when the customer cannot pay off the creditors and bring his debt to current status. The customer under such cases needs professional advice and counselling.
There are benefits and consequences which people should think before the go ahead and settle their debts.
1. Settlement helps the customer to put down his overall debt bill. The amount as well as the over all rate of interest is arbitrated and is reworked so that it becomes easy for the customer to pay back the debt.
2. This effort helps the customer to put down his overall debt … Read entire article »

Article by Chris Sims
Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $ 2 million of forgiven debt is eligible for this exclusion ($ 1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What … Read entire article »

Article by Karin Velez
The economy has hit taxpayers pretty hard over the last few years and many have had to negotiate with lenders to reduce their debts. In many cases, these lenders have allowed taxpayers to settle their debt for much less than what was owed. However, any cancelled debt over $ 600 may create a tax bill to the taxpayers. This includes mortgage forgiveness in the case of foreclosure or short sale.
Generally any time you have a foreclosure or a cancelled debt you are hit with a second hardship – a tax bill. Lenders who have forgiven a debt issue a Form 1099-C, Cancellation of Debt, which shows both the taxpayer and the IRS the amount that was forgiven. The IRS considers this to be taxable “other” income since … Read entire article »

•Credit Score – A debt settlement program will most likely have a negative effect on your credit score. How much your credit score will drop will be determined by how your credit score is right now. If you have been behind on your debts for a while already, your credit score may not be affected as much. If you have a great payment history and good credit score when you enroll in a debt settlement program, your credit score will likely plummet. A debt settlement program is NOT designed to improve your credit; it is a strategy to eliminate your debt as fast as possible and for as little as possible. Maintaining a solid payment history with all of your creditors is the only way to improve your credit.
•Balances can … Read entire article »

Keeping a record of one’s total liabilities and assets in the IRS insolvency worksheet is important in proving that insolvency exists prior to cancellation of debt in one’s income. Debt Insolvency offers a complete guide on how to deal with insolvency and bankruptcy problems through well researched information and helpful links regularly updated for the user’s benefit.
Cancelled debt is considered an income when a liability is forgiven. This is usually added as miscellaneous income on a person’s tax return and is therefore taxable. There are ways to exclude forgiven debt from taxable income and one measure involves discharging the liability in a bankruptcy. A person can qualify for exclusion of forgiven debt as income by proving an insolvency status before the cancellation of debt.
An insolvency worksheet IRS needs to be … Read entire article »

A lot of people nowadays are being sent 1099-C to settle individual debts or debt consolidation. Upon receiving this form, make sure qualification is adequate in case one applies for IRS Form 982 to reduce the taxable income from cancelled debt. Checking box 1a means a discharge of indebtedness. The amount discharged for bankruptcy is recorded on line 2a and should only be listed on line 10a if one likes to retain non-depreciable assets and if the amount is above the remaining debt after the bankruptcy discharge.
One other circumstance that the debtor can be charged by the taxman is if form 982 short sale conditions were not met. A short sale occurs when an excess exists on the amount the debtor owes the creditor upon filing for bankruptcy. The excess … Read entire article »

Article by Ask Bill
IRS tax debt could be described as the amount of money owed by a taxpayer to the Internal Revenue Service in the form of back taxes, filing of returns and other penalties levied by the IRS. Now, this is what David Green did not know. He was under the impression that if he did not file his tax returns for one year, then he would not be penalized. He also was of the opinion that since his mortgage debt was cancelled and since he did not earn any additional income because of the cancellation, he would not have to pay any taxes. Hence he ignored the Form 1099C which his creditor had issued at the time of Cancellation. David felt like he was hit by a bolt … Read entire article »

Do you know about the 1099-C and cancellation of debt?
When a home owner sells his or her property using a short sale a 1099-C is generated.The IRS issued a news release on Sept 17, 2007 trying to clarify the 1099-C in regards to foreclosures. Many homeowners are unaware of this situation and feel once the property is gone all financial obligations are wiped out. That may or not be a correct assumption.
This will illustrate how the IRS determines your potential liability in a short sale or a foreclosure.
How to figure cancellation of debt income
1. Enter the total amount of the debt canceled/forgiven. ____________________
2. Enter the fair market value of the property from Form 1099-C, box 7. ____________________
3. Subtract line 2 from line 1. If less than zero, enter zero. ____________________
Keep … Read entire article »

As an increasing number of individuals are affected by debt cancellation, tax preparation companies are frequently called upon to address this matter. Forgiven debt is usually added to taxable income, but exceptions do exist.
Taxpayers with cancelled debt receive a Form 1099-C from the financial institution where they borrowed money. Because this form is also sent to the IRS, paid tax preparers should not ignore it. The amount on the 1099-C is not taxable if it relates to indirect debt, such as a co-signer on a loan. Only the taxpayer who received use of the borrowed funds is subject to reporting income by not repaying the debt.
However, a borrower with cancelled debt discharged in bankruptcy or caused by insolvency is not taxed on the amount. For these individuals, tax preparation services … Read entire article »

When a homeowner defaults on their mortgage, typically after missing 3 – 6 payments, there lender will initiate the foreclosure process. Foreclosure is the legal and professional proceeding in which a lender obtains a court-ordered termination of a mortgagor’s equitable right of redemption. In layman’s terms a foreclosure is the legal process a lender must go through in order to take back a property after a homeowner has defaulted on the terms of their mortgage. Banks are not in the business of owning properties, and therefore every bank has some type of Asset Management department specifically for liquidating non-performing assets. So, as a homeowner, foreclosure doesn’t necessarily mean all hope is lost. One of the ways a lender can liquidate a non-performing or bad asset (mortgage) is to allow a … Read entire article »